A partnership has accounts receivable with a basis of $0 and a fair market value of $30,000 and depreciation recapture potential of $20,000 . All other assets of the partnership are either cash, capital assets, or § 1231 assets. If a purchaser acquires a 40% interest in the partnership from another partner, the selling partner will be required to recognize ordinary income of $12,000
a. True
b. False
Indicate whether the statement is true or false
False
RATIONALE: The selling partner must recognize ordinary income to the extent of gain inherent in the partner's share of unrealized receivables. For this purpose, unrealized receivables includes potential depreciation recapture. The seller's 40% share of receivables and recapture is $20,000 [($30,000 + $20,000) × 40%]. The partnership has no basis in these items, so ordinary income must be recognized for the entire $20,000.
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